BRITISH TELECOMMUNICATIONS plc 201 TELECOMMUNICATIONS BRITISH Annual Report & 5 Form 20-F 2015 British Telecommunications plc Registered office: 81 Newgate Street, London EC1A 7AJ Registered in England No. 1800000 Produced by BT Group Typeset by RR Donnelley Printed in England by Leycol Printers Ltd Printed on elemental chlorine-free paper Sourced from sustainably managed forests www.bt.com As a wholly-owned subsidiary of BT Group plc, British Telecommunications plc meets the PHME 73830 conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K as applied to reports on Form 20-F and is therefore filing this Form 20-F with the reduced disclosure format. 00B_802639_CoverSpread_9mm.indd All Pages 5/18/2015 4:47:27 PM BT’s purpose is to use the power of communications to make a better world. It is one of the world’s leading providers of communications services and solutions, serving customers in more than 170 countries. CONTENTS 2 The Strategic Report Purpose and strategy 2 Overview 2 Our purpose 3 Our goal 3 Our strategy 5 Our culture Delivering our strategy 6 Our business model 6 Financial strength 7 Our people 9 Our networks and physical assets 10 Research and development 10 Brand and reputation 11 Stakeholders and relationships 16 Natural resources 17 Our risks 26 EE acquisition: risks Our lines of business Group performance 47 Our progress against our KPIs 48 Group financial performance 53 Delivering societal and environmental benefits 55 Report of the Directors Statutory information 58 Statement of directors’ responsibilities 59 Independent Auditors’ report – Consolidated financial statements 61 Consolidated financial statements 66 Notes to the consolidated financial statements 110 Independent Auditors’ report – Parent company financial statements 111 Parent company financial statements 127 Subsidiary undertakings 128 Additional information 141 Cross reference to Form 20-F This is the BT plc Annual Report for the year ended 31 March 2015. It complies with UK regulations and comprises part of the Annual Report on Form 20-F for the US Securities and Exchange Commission to meet US regulations. Please see the cautionary statement regarding forward-looking statements on page 129. In this document, references to ‘BT’, ‘BT plc’, ‘the group’, ‘the company’, ‘we’ or ‘our’ are to British Telecommunications plc and its subsidiaries and lines of business, its internal service unit, or any of them as the context may require. References to ‘BT Group plc’ are to BT plc’s ultimate parent company. A reference to a year expressed as 2014/15 is to the financial year ended 31 March 2015 and a reference to a year expressed as 2015 is to the calendar year. This convention applies similarly to any reference to a previous or subsequent year. References to ‘this year’, ‘the year’ and ‘the current year’ are to the financial year ended 31 March 2015. References to ‘last year’ and the ‘prior year’ are to the financial year ended 31 March 2014. 802639 BT Group PLC.indb 5 5/19/2015 1:07:16 AM 2 BT plc Annual Report & Form 20-F 2015 THE Strategic Report PURPOSE AND STRATEGY OVERVIEW OUR PURPose British Telecommunications plc is the principal operating subsidiary BT’s purpose is to use the power of communications to make a of BT Group plc. We are a wholly owned subsidiary of BT Group better world. plc. The BT Group plc Board has ultimate responsibility for the We are here to meet the needs of our customers, delivering the management of the group and the Operating Committee of BT experience, products and services that matter to them. Millions Group plc is the key management committee. It monitors the of individuals connect through us to their friends and family, and group’s financial, operational and customer service performance have huge amounts of information and entertainment at their and has cross-business oversight of BT’s lines of business. It also fingertips. The smallest companies right through to multinational reviews the group’s key risks and considers the potential threats corporations use our services every day to conduct their business and opportunities to the business. and compete in the global marketplace. Many public services rely The Purpose and strategy, Delivering our strategy, Our lines of on our technologies, and in the UK the telecoms industry operates business and Group performance sections on pages 2 to 54 form across our networks. Our success as a business depends on the Strategic Report. delivering value to all our customers, enabling them to fulfil their needs and aspirations. We present the audited consolidated financial statements on pages 61 to 109 and 127. The connectivity we provide every day plays an essential role in modern society and economies. Our core business represents a significant part of the social infrastructure in the places where we operate. The diagram below shows how our strategy supports our goal and purpose. It sits at the centre of our business model. External environment Governance Our purpose To use the power of communications to make a better world Our goal A growing BT: to deliver sustainable profitable revenue growth Our strategy Broaden and deepen our customer relationships Deliver superior Transform Invest for customer service our costs growth Outputs & Inputs Value creation Outcomes Mobility Leading TV and UK business Fibre and future global content markets voice companies Our culture A healthy organisation Our values Customer Team Honesty Change Pride We are We help We are honest We all make We are proud here for our each other and respectful change to make a customers achieve more happen difference Risks The Strategic Report was approved by the Board of Directors on 13 May 2015. By order of the Board Tony Chanmugam Director 802639 BT Group PLC.indb 2 5/19/2015 1:07:16 AM The Strategic Report 3 Purpose and strategy It is because we recognise how important connectivity is today that key processes relating to installations and when customers move we also work to extend the value we can add to communities where house. we operate and to society at large by finding new ways that our We have made some good progress in these and other areas, products and services can bring social and economic benefits. We including: are committed to using our technologies to respond to the climate change challenge. And we enable our people to contribute their skills • recruiting 2,500 new engineers; and energies to make a positive impact in areas of social need. • over 1,000 system and process changes to make it easier for our customers to deal with us and to help our people support It is by creating value for our customers and society that we will them. This includes improving our websites so that it is more satisfy the needs of our shareholders – and deliver sustainable straightforward to make and track orders, and find information profitable revenue growth. and help more easily; OUR goaL • investing in our network to make it more resilient to extreme Our goal is to deliver sustainable profitable revenue growth. weather conditions (in both summer and winter); • specialist diagnostic equipment, alarms and new handheld Previously, we have had to depend on cost transformation to grow devices to help our engineers find faults quickly, increasing their our cash flows. In the years ahead, revenue growth, combined with ability to get to the root of the matter and fix more issues in one continued transformation of our costs, will provide a powerful go; and platform for long-term and sustainable cash flow growth. • deploying a new appointment booking system for calling We will reinvest some of the cash we generate back into the business, customers back and providing training in communication skills to enable us to grow over the long term. A virtuous circle. And we will for our advisers. also use it to reward our shareholders and other stakeholders. But we still want to do better. Looking ahead, we are focusing on five key areas: OUR stRategY Our strategy is founded on broadening and deepening our customer relationships. Acting on We are using the insight of our customers, our insight people and other companies to guide decision- To deliver sustainable profitable revenue growth, we need stronger making and create products and services based relationships with our customers. That means making sure we stay on the changing demands and priorities of our relevant to them as markets, lifestyles and technologies change. customers. And as we explain below, we are developing a new way to analyse the effectiveness of The three pillars of our strategy help us do that: delivering superior our processes from the customer’s perspective. We customer service; transforming our costs; and investing for growth. will use this insight to improve the way we do things. The better our customer service, the more we will sell and the less time and money we need to spend putting things right. And the Keeping our We are making our products and networks more customers resilient. Monitoring our networks and ordering better we manage our costs, the better value for money we can connected systems will help us identify issues sooner – in many offer our customers and the more we can invest in giving customers cases before the customer is even aware there is an what they need, today and tomorrow. And these principles in turn issue. drive our business model (see page 6). Creating great We are improving the way we keep customers Deliver superior customer service tools and informed. We continue to develop our websites, Every day we touch the lives of millions, providing services that systems offering more self-help features and online support.